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spk05: Good morning, ladies and gentlemen. Welcome to Lion Electric fourth quarter and 2021 results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the form of presentation. As a reminder, this conference call is being recorded. I would now like to turn the call over to Isabelle Aja, Vice President, Investor Relations and Sustainable Development. Please go ahead, Ms. Aja.
spk01: Good morning, everyone. Welcome to LION's fourth quarter and 2021 results conference call. Bienvenue à la conférence téléphonique sur les résultats financiers du quatrième trimestre et de l'année 2021 de Lyon. Today, I'm here with Marc Bédard, our CEO, funder, and Nicolas Brunet, our Executive Vice President and CFO. Please note that our discussion will include estimates and other forward-looking information, which our actual results could differ from in the future. We invite you to review the cautionary language in yesterday's earnings release and in our MD&A regarding the various factors, assumptions, and risks that could cause our actual results to differ. With that, let me turn it over to Marc to begin. Marc?
spk09: Thank you, Isabelle, and good morning, everyone. Thanks for being with us today to discuss our performance during our first year as a public company, a performance we are very proud of. Indeed, 2021 was the best year ever for Lion. We consolidated our commanding leadership position in the electric bus market, where we have been selling and delivering vehicles since 2016, while at the same time starting to sell our electric trucks. Despite the supply chain crisis and the COVID challenges, we also proved to be a very resilient company and started the construction of both the Joliet Manufacturing Plant and the Lion Campus, and we continued to hire talented employees, including key senior leaders. All this while growing our order book by over 2,000 units, delivering about 200 vehicles, and developing new platforms. I would like to discuss those three elements on today's call before passing it on to Nicholas, who will discuss our financial results. First, we delivered on our 2021 strategic objectives. Second, we continued to proactively manage supply chain challenges, and we increased the pace of vehicle deliveries in Q4 of 2021. And finally, we are entering 2022 with optimism our main objective being the scale-up of our manufacturing and commercial operations. Let me start with our 2021 main achievements. We are pleased that in 2021, we surpassed pre-pandemic levels and delivered 196 vehicles, more than double the 80 buses delivered in 2020. With respect to the order book, We drastically increased it to $575 million, consisting of 2,025 buses and 300 trucks, for a total of 2,325 vehicles. This compares to an order book of 300 vehicles when we announced our planned public listing in November 2020. It also includes an order from a customer with a leader in the retail industry for 50 Lion-A tractor trucks. We are seeing a similar trend in the Lion Energy PO book, which consists of 278 charging stations and related services, representing a total order value of $3 million. Lion Energy is a key element as we support our clients in their transition journey to EVs. With the same objective of supporting our customers, we announced earlier this week a partnership agreement with Cox Automotive that will complement our experience centers by giving our customers access to an additional 25 service centers, more than 1,000 technicians, and nearly 800 mobile service trucks in the field. We also made significant progress on our two construction projects and delivered on key milestones for each of our manufacturing facilities. First, with respect to our state-of-the-art vehicle factory in Joliet, Illinois, we finished the construction of the Shell Building and took possession of our 900,000 square foot manufacturing plant. With tenant improvement work and the purchase of critical manufacturing equipment progressing as scheduled, we are still on track to start vehicle production in the second half of this year. This will be the largest U.S. production site for zero-emission, medium- and heavy-duty vehicles with a capacity of 20,000 vehicles per year. Hiring is ongoing, and we have started to fill key positions, such as Eric Pansagra, who recently joined Lion as general manager for the Joliet facility. Now turning to the Lion campus. During the year, we broke ground in the construction of what will house our new battery plant and innovation center. Construction work is on schedule. We have now completed the building foundations for the battery plant and started to mount the structure of the building. On the technical front, We are working with JRA, an Hitachi company, to purchase and set up production equipment. Here again, we are on schedule and still planning to start producing the first batteries in the second half of this year. With respect to the Lion team, the build-out is also going according to plans. Our headcount has increased by 550 employees since November 2020. It now amounts to over 1,000 people including more than 300 engineering and research and development professionals. Recent key hires also include Richard Coulomb as Senior Vice President, Strategic Initiatives, David Seacott as Vice President, Operations, and William Blanchard as Head of Lion Capital Solutions, on which Nicholas will further elaborate in a moment. On the product development side, We spent $46 million in R&D in 2021 as we continued to develop new platforms that will complement our current seven models. During the year, we were proud to unveil the first purpose-built all-electric ambulance that we developed in partnership with Demers, one of the largest ambulance manufacturers in North America. Let me now provide a brief update on supply chain. 2021 supply chain challenges prove the importance of having a robust supply chain tailored to electric vehicles, which is precisely what we have here at Lion. Unlike newcomers or even incumbent OEMs entering the field of EV, our 10 plus years of experience in the EV space have been key in managing this global supply chain crisis. It took us over five years to build a deep supply chain tailored to EVs, and this has been a differentiating factor for us in 2021 and will remain a key competitive advantage for our long-term growth. During Q4, we were pleased to see an improvement in the pace of production as compared to Q3. Not only do we have more visibility on potential upcoming issues, but we are also starting to feel the tangible impact of proactive initiatives we previously undertook to address these supply chain challenges. But we remain cautiously optimistic for this year, as we continue to see disruptions in the global supply chain in addition to labor shortages, driven in part by COVID, that affect both our operations and our suppliers' operations. In a nutshell, supply chain challenges are eased but not fully resolved yet. I will now provide more color on our 2022 key priorities. First, on the deliveries and purchase order front, we remain focused on increasing our purchase order book with the objective to establish our leadership position in the electric truck market as we have already done in the electric school bus market. The strong secular tailwinds driving EV adoption should further support this objective, as we anticipate that government programs funded by the bipartisan infrastructure bill in the United States, in addition to many other programs, will formally materialize in 2022. As a reminder, The infrastructure bill includes a $5 billion funding package towards the replacement of existing school buses for zero-emission ones and $7.5 billion for EV infrastructure. With respect to the ZETF program in Canada, it includes $2.75 billion to support school bus and public transit electrification. Although we cannot confirm the exact timing of funding approval, We are pleased to announce that Student Transportation of Canada, which has placed a conditional order for 1,000 all-electric Lion's Sea School buses under the ZTF, has formally been accepted by the government for the last step of its funding application. Now turning to our two new manufacturing facilities. In Joliet, We will start receiving manufacturing equipment to start production of buses over Q1 and Q2 of this year, and equipment for trucks will be received later during the year. As of December 31st, in addition to tenant improvements, we have spent $13 million in CapEx, and as of today have engaged an additional $40 million on building and equipment such as AGVs, lifts, overhead cranes, and toolings. We will first focus on the installation of a production line for buses to keep up with the very strong momentum for our electric school buses, as reflected in our order book. Simultaneously, we will ramp up our manufacturing capacity by setting up additional production lines, including the one for truck. Our headcount in Illinois should amount to approximately 500 employees at the end of this year. Now, with respect to the Lyon campus, The battery module assembly line, which will be highly automated, has already been ordered for initial testing, production of module prototypes, and commercial production. The orders for the equipment requiring long lead time, such as conveyors and wire bonders, have also been placed, and both delivery and installation are on schedule. As of December 31st, we have spent $5 million in capex, and as of today, we have engaged an additional $55 million on equipment and building. Furthermore, we are currently in active negotiations with cell suppliers to finalize long-term supply agreements. And finally, the start of module and pack production is planned for the second half of this year. As you can see, all is going according to plans. As far as our Innovation Center, which will mostly house our R&D activities. It will be completed and operational in 2023. Which takes me to the last element on which we will focus in 2022, the initial delivery and commercialization of additional models. We are pleased to announce that during the year, we will start delivering the first Lion-8 tractor and Lion-8 refuse trucks for which we already have orders. We also expect to begin this year the commercialization and delivery of the Lion D bus, the Lion 5, the Lion 8 bucket truck, and our electric ambulance. However, we have decided to push to 2023 the commercialization of the Lion 7, the Lion boom truck, and the Lion utility truck, As on the front of supply chain challenges, we want to allocate all efforts on models for which we already have a strong demand or for which we are in active commercialization. With that, let me now turn the call over to Nicholas, who will comment on our financial results.
spk10: Thank you, Mark. Before we jump into Q&A, let me give you a quick overview of the Q4 and 2021 results. We were pleased to complete 2021 on a positive note with a sequential growth in deliveries and an improvement in margin. We delivered 71 vehicles in Q4, 57 buses and 14 trucks, a significant increase as compared to the 46 delivered in the same period last year and the 40 vehicles delivered in Q3 2021. Please note that this number includes the delivery of approximately two-thirds of the vehicles that were 90% plus completed as of the end of Q3 and awaiting components to be finalized and delivered. 43 of the Q4 deliveries took place in Canada and 28 in the United States. This translated into revenues of $22.9 million, up $9.4 million as compared to $13.5 million last year. Our gross profits were $2.2 million, or 10% of revenue, a significant improvement over margins achieved through the year as we continue to scale our business. Net earnings were $28.3 million and included a gain of $46.6 million related to the non-cash change in fair value of share warrant obligation and $5.1 million of non-cash share-based compensation expense. Last, adjusted EBITDA was negative $7.5 million in Q4. As a reminder, adjusted EBITDA includes adjustments for certain non-cash and non-recurring items, namely change in fair value of share warrant obligation, share-based compensation, and other non-recurring expense. Let's now discuss cash flow. Cash flow from operations for Q4 was negative $59 million, inclusive of $47 million of changes in working capital, as we continue to invest in working capital and prepare for a continued increase in production. We also invested $10 million in research and development and $19 million in CapEx, of which $9 million was included in trade, payables, and accrued liabilities as of December 31st. The CapEx amount includes $11 million for leasehold improvement at our Joliet plant and $5 million for the construction of the Lion Captain. I will discuss this in more detail in a few minutes, but note that as we took possession of the Joliet building and are in parallel advancing with the construction of the battery plant, we expect CapEx to significantly increase in 2022. Now let me make a few comments on selected 2021 performance items. We were extremely pleased with what we have accomplished. In addition to consolidating our commanding leadership in the electric school bus market, we managed challenges outside of our control and posted record delivery and revenues in the history of our firm. Specifically, we delivered 151 buses and 45 trucks for a total of 196 units in 2021, as compared to 80 buses in 2020. 134 of these deliveries took place in Canada and 62 in the United States. This translated in revenue of $57.7 million, up $34.3 million, or 146%, as compared to $23.4 million a year earlier. Our gross profits were at break-even, down from $3.1 million a year ago, as we incurred significant manufacturing ramp-up costs in 2021. Net loss for 2021 was $43.3 million and included a gain of $85.8 million related to the non-cash change in fair value of share warrant obligation and $71.1 million of non-cash share-based compensation expense. Adjusted EBITDA was negative $27.6 million for 2021. Last but not least, let me speak to select balance sheet items and liquidity. First, we ended the year with $242 million in cash, in addition to untapped government loan facilities for approximately $80 million for the Lion Canton. In addition, our revolver, which remains undrawn, was increased to $200 million. While we do not have any immediate needs for the revolver, we had an opportunity to increase the facility and did so in order to build additional liquidity as we continued to ramp up production. Finally, we finished the year with inventories of $116 million. The vast majority of this consists in raw materials as we continue to prepare for increased production and aim to minimize the potential impact of supply chain disruption. This also includes approximately 3,000 batteries on hand, in line with our strategy to overstock key EV components in the current environment. My last comments before turning the microphone over to Mark will pertain to 2022. Although we will not be providing financial targets, it is important for us to give you color on what could impact the year. Although pleased with our Q4 delivery, we still expect Q1 manufacturing and delivery to be impacted by supply chain challenges, but we expect this issue to be reduced as we move forward in the year. With no surprise, We also expect some upward pressure on the cost of raw material, driven by inflation. All this should increase our operating costs, and we expect this to continue for most of the year. Of course, we will work to mitigate the impact of such cost pressure and could potentially adjust our pricing strategy accordingly. Let me now spend a minute on CapEx investment. 2022 is expected to be a big year, as we intend to invest approximately $215 million towards our two new plants. For Joliet, total capex to completion is expected to amount to approximately $150 million, including approximately $115 million expected to be spent in 2022. The increase in total cost, as compared to the $130 million initially announced, is mainly the result of inflationary pressure and a slight increase in the scope of the project as we refined it to optimize the efficiency of our plant. We intend to work to optimize the project capex. For the Lion Campus, total capex is expected to amount to approximately US $180 million, or $220 million Canadian, including approximately US $100 million expected to be spent in 2022. The increase in total cost, as compared to the $145 million initially announced, is the result of both inflationary pressure and an increase in the scope of the project. as we have elected to equip the innovation center part of the campus with a climate testing and battery destruction room. Please note that the $180 million mentioned above excludes the potential proceeds from a sale-leaseback transaction that we are currently exploring for the battery building. Should we go ahead and close this transaction, we expect the capital outlay to be closer to the total capex amount of $145 million that we had initially announced. On a final note, I'm pleased to announce that we are making great progress in our objective to enhance our offering of vehicle financing solutions to our clients, and that William Blanchard has joined our team as Head of Line Capital Solutions. His mandate will be to design and implement programs to offer financing to our customers for the purchase of our electric vehicles and charging infrastructure, as well as for the monetization of carbon and other credits on behalf of our clients. We plan to achieve this via partnerships with large financing institutions, many of which are already offering financing solutions to our clients. We believe these to be important aspects to ease the transition to EV for our customers, as long-term financing solutions significantly smoothen the cash flow profile and the transition to EV, and in many cases, allow the customer to benefit from a favorable TCO from day one. We will update you as we progress towards building the Lion proprietary financing solution, which will ultimately aim to further accelerate our purchase order book and pace of delivery. And with this, I will turn the call back to Mark.
spk09: Thanks, Nicholas. Before we open the lines for questions, let me conclude that this presentation was not a question of if, but when. And this when... is clearly happening right now for Lion. Looking at the entire EV landscape, I am more than ever before convinced that we are in a unique position to consolidate our leadership in the electric bus market while becoming a key player in the medium and heavy duty electric truck sector. As we look ahead, we expect to reach key milestones again this year, which will significantly accelerate our long-term sustainable growth in 2022 and beyond. Let me finish by thanking our employees for their agility, dedication, and resilience, as well as for their hard work throughout this past year. I would also like to thank our customers and our shareholders for their support throughout the year. And we are looking forward to our continued interaction in 2022 and beyond. Thank you.
spk01: Operator, please go ahead with the question session. Thank you.
spk05: Your first question comes from Bernard Pierre with the Johnson Capital.
spk07: Yeah, okay. Good morning. I guess it's my name. Good morning, everyone. Okay, good morning. Good morning. Okay, thank you very much for taking my question. Just you ended the year with purchase orders around 2325 units. What about the timing for these deliveries? Mark?
spk09: Yeah, in fact, half of those units are deliverable this year. So a little bit over, let's say, 1,000 units are deliverable in 2022. So we're working very hard on this. I can tell you that right now our pace of manufacturing in Q1 is about the same as the one that we had at the end of last year. So it's going well. We are recovering slowly but surely from everything that's happening. And that happened, you know, with the supply chain crisis and with COVID. But, you know, the supply chain challenges, though, remain for 2022, as I was, you know, just saying earlier. So we will be ramping up this year slowly but surely. But, you know, we do have the manufacturing capacity to deliver those units up.
spk07: Okay, perfect. And could you provide the color on how your bidding pipeline has increased versus the 6,000 units you had at the end of the 2020 cycle?
spk09: Yeah, absolutely. Well, the pipeline is increasing a lot, as you know. We've decided, I mean, not to disclose the pipeline. It's not giving, you know, a lot of information, and what we have are orders, real orders in the purchase order book, and I know this is not the way that a lot of other OEMs. have been acting, but this is what we feel is information that the market can trust. So we issue or we disclose a real order book when the customers are sending us the information the purchase order. So dialogue with customers are going very well. In the truck market, we have orders for 300 units right now. Last week, we got an order for 50 units from a leader in the retail industry space, and the name will be disclosed within the next few weeks. And this is the kind of dialogue we're having with customers now. We do have a lot of customers seeing the need to electrify their whole fleet, and this is very, very promising. So we will not disclose, you know, detailed information on the pipeline, but let me tell you that the pipeline is growing as the order book, you know, they grow as well in last year.
spk07: Okay, and could you maybe provide an update on your relationship with Romeo, given the plunge in their share price, and also what kind of output we might expect from the battery plant in 2022?
spk09: Yeah, well, as you know, we have committed ourselves to buying a little bit over $200 million. over the next years from Romeo, we decided to start putting those batteries on the Lion 8 tractor to start with. So we started receiving some battery packs and we are expecting to receive many, many more battery packs from them. within the next few months. So we're not really looking at the share price with respect to Romeo. It's more a question of relationship and their ability to deliver the unit that we are looking at.
spk07: Okay. And last one for me. What about your comfort level around the cash position given the CapEx outlook that was provided earlier? Maybe, Nicolas?
spk10: Yeah, hi Benoit. Look, we believe we have a very solid balance sheet. We currently have access to a little bit over $520 million. That's $240 million or $242 million of cash, $80 million in government loans or grant loans, and an undrawn revolver of between $200 million. The capital requirements for the two projects, as I mentioned earlier, is about $330 million, of which $215 is to be spent in 2022. And, of course, we continue to invest in working cap and R&D as we continue to ramp up production and sales. But we feel good about the current capital situation. It provides us with good flexibility and a lot of runway. That said, we'll remain focused on the management of cash resources and we'll be very vigilant and always assess alternatives in this regard.
spk02: okay thanks thanks very much for the time thank you your next question is from rupert mara with national bank good morning everyone good morning if i can come back to production capacity you mentioned you you have the capacity to deliver a thousand units uh If you didn't have supply chain issues, where would you say your production capacity is today if there were no supply chain issues? And what would you need to do to get that to your rated 2,500 units per year?
spk09: Yeah, our manufacturing capacity right now, Rupert, with respect to the equipment, is 2,500 units per year, and we have the labor to do about two-thirds of that. So same thing we said last year, this is exactly the same thing we do right now. So about two-thirds of 2,500 units on an annual basis is our manufacturing capacity right now.
spk02: Okay, great. And you did mention some labor shortages. Give us a little more color on that. Are you seeing much turnover in your staff? And would you hire more people if you could find them at this point?
spk09: Yeah, well, that's a good question. I mean, I think, you know, what is really helping us right now is the Lions mission. The people who want to work at Lion, they are well-paid as well. They're excited about our ESG mission. They're excited that we're helping customers reaching their ESG goals as well, which is what all companies are looking at doing right now, and we feel we're in a great, great spot because of that as well. So the people are coming to Lion for, well, first of all, because of what they're doing for a company that they respect the values of. So that's the first thing. The second thing, obviously, is always how much you're getting paid. So we are able right now to hire the people that we need. Is there some turnover? Yes. Like in all the places, you know, there is a turnover of employees, but I would say, you know, it's under control. And if you're looking at the number of employees from one corridor to the other, we are always growing this number. We passed the 1,000 people number, and, you know, this is something, you know, that everybody is very proud of.
spk02: So how did that number change quarter over quarter? And in particular, how many are in the U.S. now? And how do you see that growing towards your target of 500 buying year-end?
spk09: Yeah, so, yeah, we're ramping up, you know. We will be receiving, as you know, the manufacturing equipment in Joliet. And at the same pace, you know, we're ramping up the number of employees in Joliet. So it's going to be mostly in the second half. of this year. So we have a few employees on site right now, and we will be hiring on a regular basis. And most of them will be coming in in the second half of next year to start manufacturing some vehicles in the second half of next year. So more and more employees on the U.S. side, and it's not only with respect to manufacturing, but it's also with respect to procurement. We have HR people. We have cell people. As you know, we do have experienced hires. that we are opening as well, and we're putting more and more people in those experience centers. I think the big difference between Lion and some other companies is that we have the whole ecosystem, and this ecosystem is key in selling the vehicles, and obviously a lot of that growth is coming on the U.S. side.
spk02: Great. I'll link it there. Thank you. Thank you, Rupert.
spk06: next question is from kevin chang with cibc hi thanks for taking my question and good morning um good morning uh i just wondered just given the inflationary environment obviously creates a little bit of uncertainty as you as you uh you know build your backlog is that changing how you you you build the order book whether you maybe a little bit more apprehensive building too far out just given the uncertainty around raw material costs and you don't get caught offside with gross margins here.
spk10: Yeah. Hey, Kevin. It's Nick here. Obviously, we factored that in how we build the order book. There are, for us, two things sort of working in an opposite direction. We have a cost-down program, as you know, to bring our overall production costs down. And at the same time, we are seeing some inflationary pressure, without a doubt. That said, it's still the intention to build the pipeline in the longer term. It does inform how we go about You know, the curve of that cost down, but it remains our goal and, you know, what we're doing, our focus to lower the cost of the vehicle over the year, and we have a good grip on where that's going over the next few years. Yeah, and of course, we haven't adjusted the pricing in the near term. It's always something that we could do, but for the time being, we're seeing our competitors increase their prices. We saw some price increase as high as 15%. That makes our product relatively more attractive, and we feel that the unit-level economics continue to work very well. And so it's something we're very mindful of, but it doesn't change a long-term strategy.
spk06: Okay. And then, Mark, you commented on, I guess, how people define their backlog. And I think the way you define it is maybe more conservative. It's a cash-to-purchase order versus maybe others lumping in pensions and stuff like that. But just wondering, for big customers that you're going after, what's the big sign, large LOIs or some sort of handshake agreement with another OEM? Does that not preclude you from seeking that business in the sense that somebody else has kind of put their flag on that territory? Or do you find that those customers are still open to talking with you, even if they sign a large, or not sign, but have indicated an intention to buy some electric vehicle from another OEM?
spk09: Well, you know what, Kevin? We feel that's exactly the other way around. I mean, the operators, they're looking for a real solution. They're not looking for press release to announce, you know, that they have been ordering trucks when they do not order trucks. So, basically, we feel our strategy is the right one. And it's been the same, you know, since day one. We are real. We have real operations. We have real customers. We are adding, you know, products on the road. We saw some newcomers saying that they sold units in 2021. When you're looking, they sold units for zero. So it's only units on the road. We have a lot of units on the road. We have a lot of mileage. So we don't need those kind of things. So the dialogue we're having with the customers is, are the kind of dialogue that the customers are expecting. Basically, we are there for them. And they want to put trucks on the road. They want to put buses on the road. They want to put them, you know, without distracting their operations right now. They're making money delivering products, and this is what we're doing with them. So we're selling them the right vehicle with the right specs. at the right time with the appropriate charging infrastructure as well at the right price. And this is exactly what they're looking at. So they want people to know what is their duty cycle. the duty cycle of their products, and that will be, you know, providing them with the real charging infrastructure. So when we're selling, let's say, trucks, for example, and that's one of the reasons maybe, you know, for the slower ramp-up because we're in a very good, you know, very serious dialogue with customers. Well, most of the time it's the whole thing that the customers are buying. You see that, you know, the – The Lion Energy PO book is growing, you know, also we have a very good growth in that place as well. So they're looking for the charging infrastructure. They're looking, you know, for a one-stop shop, and that's exactly what we're getting them. So we feel exactly the other way around. It doesn't preclude us from having any discussions with them. If there's something, I think that they feel, you know, that they're talking to the right OEM when they're talking to us.
spk06: Okay, that's helpful. And I apologize if I missed this, and last one for me. You talked about some of these manufacturing wrap-up costs that are weighing on gross margins. Did you quantify what those were if someone were to try to separate kind of those wrap-up costs versus direct costs of goods sold associated with the vehicles that you delivered in the quarter?
spk10: Yeah, no, Kevin, we don't separate those, and obviously there's a lot of sensitive information in there. I'd say, you know, the 10% gross margin off of the 71 vehicle sales is a big improvement over what we've seen over the rest of the year. We're very happy with that, as I mentioned before. you know, at the unit level, the model works really well. It's a matter of scaling it. We are incurring costs today, and those costs are really going through the T&L today, but they're really targeted for resources that are targeted at tomorrow's production, and that's sort of the, you know, what we're going through to grow the production and the sale. But I'll reiterate, you know, it works well at the unit level, and we expect gross margin to continue to increase with scale in production and with
spk06: Thank you for taking my questions. Have a great weekend, everybody. Thank you again.
spk05: Next question is from Brian Johnson with Barclays.
spk10: No questions. You know, as we look at the 4Q run rate, You know, how much were trucks that were largely assembled in 3Q that you have parts for? How much then were kind of fresh from scratch trucks? And then you cautioned kind of at about 1Q, but how do we think then about the cadence through 22 of bills? Maybe I'll start with a question on Q4, and Mark will take the cadence going forward. We talked about 50 vehicles, not trucks, that were 90% plus completed as of the end of Q3. You know, this is a figure that we provided given the impact that the supply chain issues had had on the quarter. In the fourth quarter, about two-thirds of those specific vehicles were delivered. And then, you know, assume that the rest were either started from scratch in the quarter or started before but were at a much lesser completion rate. So that's for the Q4 deliverance.
spk09: Yeah, Brian, let me – well, good morning, Brian. Let me take, you know, the cadence here. For 2022, as I said, I mean, we see the cadence right now in Q1 being about the same as the one at the end of last year. What we're seeing right now, you know, with the supply chain challenges, it's evolving very, very fast. I will say that, you know, what we're seeing the most right now is longer lead times. from our suppliers. So most of the issues like, you know, with no delivering, I mean, we're past that. But longer lead times, on average, it's two additional months. um on average of something that was taking like you know one month uh previously is taking about three months so that's on that's on average and when we're when we do have overseas suppliers um well it's even worse because you know obviously there are longer longer lead times but also you need to add to this the logistic challenges so logistic challenges because they're less available less availability from the uh the carriers. So this is exactly what we factor. We factor all of this right now in our cadence, and we see a ramp-up throughout the year 2022. So Q1, about the same pace as we had in Q4, but we've already put in the orders to significantly ramp up after that. So it's going to be a constant ramp up throughout the year to deliver, you know, as much as possible the number of units that are deliverable this year in 2022. Let me maybe add, you know, In my answer, Brian, that in all the things that we've been doing with respect to the supply chain challenges, in addition to everything we said in the past, like stocking more components, stocking less critical components as well, all of that, we've been adding to the supplier's redundancy even more, and we started to build our U.S. procurement system. So we're getting ready to manufacture in Joliet, and many of those suppliers that will be supplying the Joliet operation have already started supplying the Montreal operation as well. So we're pleased to do that, and we're building that U.S. ecosystem at the same time. So it's really, really helping us ramp up our manufacturing, even on the Canadian side right now.
spk10: right i get that look forward to you launching here in illinois um second question kind of related to that um you know i'm a lot of specs um spec graduates uh investors are very worried about follow-on funding rounds that could be dilutive um and so i i just want to get on the table because it's always a cloud for anyone who would apply with spec so if i kind of look at your cash plus liquidity But then there's some big chunks of CapEx coming up. So it seems like in Canada, the campus will largely be paid for through that $80 million. There's a big chunk of CapEx down in Joliet for $100 million. You mentioned a sale-leaseback, but just how do we think about, you know, you have the gross CapEx in the presentation, but what it's likely to do in terms of actual CapEx coming out of the cash flow, and cash balance for the course of 2022, given all the various options you have to fund those hard assets. Good question, Brian. For the sale leaseback, I won't provide a specific figure, and this is something that we're exploring right now. It's a 175,000-square-foot building, an industrial building, just a box, and so we think our capital is better spent healthware. In terms of the $80 million government loan, do that as being very sort of proportionate, so the draws on there will be of the overall project. And then I'm back to, as for the rest, you know, back to the point that when you add all these things together, it's $520 million in liquidity, and the project is $215 million that gets spent this year on the project, and that is before any proceeds of a sale is back. So we feel very good about the current capital situation. We have good Good runway, good flexibility, but as I mentioned before, we'll be very focused on the management of cash resources and stay vigilant around alternatives for this.
spk05: Okay, thank you.
spk10: Thank you, Brian.
spk05: Your next question is from Nelman Sati with Laurentian Bank.
spk04: Hi, good morning, everyone, and thanks for taking my question.
spk09: Good morning, Nelman.
spk04: So I think, Nicholas, you had mentioned that at the end of last quarter, you had about 50 vehicles which were close to its finished model, and two-thirds were delivered. I'm wondering, in the end of the fourth quarter, what sort of number for almost finished vehicles look like?
spk10: Yeah, I know. As I mentioned before, this was a figure that we provided at the end of Q3 because of the severe impact that the supply chain had had on our production at that point. It's not a figure that we plan to update to be done on a quarterly basis. I will say, though, we're still in a situation where we're advancing vehicles and we're putting, you know, there are components or a few missing components that prevent us from finalizing certain developments.
spk04: Okay, that's fair. And when I look at your backlog growth in terms of the new truck orders, I'm just wondering if there were any repeat orders as well or were these from new customers?
spk09: Yeah, we have a mix of both, Norman. I mean, we do have repeat orders. Well, you know the story, you know, on this order of 1,000 units from SPC, obviously that's been a major, you know, repeat order. But we have new customers as well. So I will say that on the bus side, many, many repeat orders. repeat orders. We have new customers as well. On the truck side, obviously new customers because we just started delivering our electric trucks in 2021.
spk04: Okay, that's fair. And just this is more a general question in terms of the bidding activity that you're doing. I'm just wondering how big is your sales team now and what sort of incentives are there and how aggressive are you in those bidding activities? I'm just trying to get a sense of what sort of incentives are there for your sales team.
spk09: You mean for the sales people? Yeah. Yeah, well, I mean, no, they're well-paid. They do have a major incentive of, you know, making the, well, basically, you know, easing the reach of our customers, you know, in the ESG goals, which is great. So very well-paid people. Many of our people are very seasoned people in sales as well. We have many of our sales forces in the U.S., and also in Canada, and we have local people, you know, in almost all of the states and provinces that we're targeting right now. So I don't want to get into the details, obviously, because it's very sensitive with respect to the, you know, the other VMs we're competing with, but, you know, they are very well, you know, and they're doing a great job.
spk04: Okay, that's great. And maybe just one last one for Nicholas. Maybe if you could remind us that you have this committed credit facility of $100 million, I think which was upsized to $200 million. But I'm just wondering if there are any covenants or restrictions on when you can draw on it or it's just like fully committed. You can do it anytime you want without any restrictions.
spk10: You know, it's certainly fully committed. It's an ABL-like facility, so it's subject to a borrowing base. Obviously, we're growing working capital quite fast, and this is the ideal instrument for that. There are some covenants related to that that we feel are very, I'd say, more order-friendly. Yeah, I'll leave it at that.
spk04: Okay, that's very good. So, yeah, that's it from me, and thanks for taking my question. Thanks. Thank you.
spk05: Your next question is from Jonathan Lammers with BMO Capital Markets.
spk08: Good morning. Good morning, Jonathan. Mark, on the Lion Financing Solutions Division, Could you discuss the need for this you saw in the truck market and how you expect it will support sales going forward?
spk09: Yeah, no, thank you, Jonathan. Well, I think it's really going to help selling buses and trucks. You know, earlier I was talking about the customers looking for the whole ecosystem. So right now it's not only about just buying a truck like they've been doing with diesel. It's buying the whole, you know, charging the truck, the charging infrastructure, getting, you know, your ends also, you know, on any amount of subsidies out there. But it's also, you know, the financing of those trucks and buses, the higher upfront cost. is the challenge, you know, with EV. So with Lion Capital Solutions, we will be able to lower the upfront cost. Sometimes we'll be able to eliminate, I mean, the whole cost. So it's really as a service kind of financing that we are doing. So in our opinion, that was like the missing link in everything that we were offering, and we think that this is going to have a major, major impact. on ourselves going forward.
spk08: Will you be taking anything onto your balance sheet, or is it all third-party?
spk10: Hey, Jonathan, the idea is really third-party. You know, the whole point of putting the those deals to leverage the capital of others and it's something all partners we've been working with and it's a matter of formalizing and making it more programmatic. The impact on the balance sheet should be very minimum and we're talking about potentially helping with some reserves here and there but nothing major.
spk08: Thanks. And on the sales pipeline, great to see the order from the large retailer. Mark, I believe you previously mentioned discussions with some very large fleet operators regarding some potential large orders. Could you comment on how discussions with that segment are continuing and whether any large fleet operators are close to trialing a few vehicles?
spk09: Yeah, absolutely, Jonathan. It's going very well. I mean, we're in constant dialogue with them. I mean, many of them, they have already tried our products. So they like driving the product. That's the first thing. Some of them, you know, have been running some tests on our telematics. system as well, which is key for them, our capacity to deliver, you know, the charging infrastructure and almost, you know, any types of charging infrastructure as well. I mean, and all the credibility that we've been gaining in the marketplace, you know, being, well, the first one in the market, but having purpose built. Electric vehicles, which is exactly what the operators are looking for. They are looking at lowering the maintenance cost, and this is exactly what they're getting with our products. I will say it's going very well. What is very promising also is that, especially on the truck side, you will see that many of those operators are basically going for very significant numbers. as the number 50 that we saw earlier this week, but even bigger numbers than that. So many of them are looking at electrifying the old fleet within a number of years. which is very, very promising because they do understand the total cost of ownership. They get it, and they're spending most of their money on maintenance, on the cost of energy as well. So the upfront cost is something that it's really all the cost that they will be incurring after that, which is very significant for them. So when they're looking at EV, they fully understand that they're saving a lot of money on an annual basis. Well, at Lion, we do have, you know, all the experience of the last five, six years, very good technology as well. So those, you know, those discussions with the customers, I mean, they are better and better and better all the time. Yeah.
spk08: Thanks. And, Mark and Nicholas, I believe you mentioned, based on the raw material, cost inflation you're seeing, you would consider adjusting prices if necessary. Are industry truck prices trending consistently with your expectations? I believe some assemblers are publicly discussing pricing for Class 8s in the low 300 range, recognizing there's a lot of factors that go into the selling prices.
spk10: Yeah, I'd say, Jonathan, the pricing is dependent on a lot of things, including onboard energy. What we've found is that our pricing in the market is competitive. And, of course, it's not a – I wouldn't point to one single price unit or unit point. But, yeah, we feel in general pricing is quite competitive, and that's what –
spk09: an important part of the dialogue with the customer. Yeah, and let me add, Jonathan, that, you know, we feel that the strategy we've been putting forward is working very well. Like, you know, vertical integration for some components, including, you know, the batteries we'll be manufacturing later this year. This is key, and this is working very well. So while you see some of those OEMs, the only way that they can make up, you know, for the price increase they're seeing is increasing the selling price. Well, we see that, you know, our capital program, is working very, very well. So right now we have been able to do that, maintaining our margins without any price increase. So we were saying this last year that our strategy, I mean, this is the way it's working, and right now with the cuff pressure, we see that this is working very well.
spk08: Okay, last question. On the production capacity, I know you're at about two-thirds of run rate now. Do you have any guidance for us on the two new facilities, when those come online in the second half, what portion of capacity will come online in the second half, or just guidance on the fixed expenses we should be thinking about as we compare cash outflow to your liquidity?
spk09: Yeah, the way we are ramping up basically the manufacturing equipment, will be in place. If I'm talking about the battery factory, it will be 5 gigawatt-hour manufacturing capacity. Obviously, it's not day one. It's a ramp-up of this manufacturing capacity, but most of the equipment will be installed on a very short-term basis to get to that capacity, but not all of it. And we will need to ramp up the labor as well. So we will be smart. about the way we will be ramping up because, you know, we're cost-conscious as well. And we're doing exactly the same thing in Joliet. We will start with the buses because most of the order book right now, you know, is with buses. So the first vehicles we will be manufacturing in the second half of this year, we will start with the buses, and then we will start, you know, receiving by the end of this year the equipment, for the trucks as well, and then we will ramp up our manufacturing capacity according to the orders that are coming in.
spk10: Yeah, and let me just add on just the fixed expense. You probably saw the big increase in the lease liabilities and the right-of-use assets on our balance sheet that's related to JALIA. The lease there is slightly over $4 million for the first year. Obviously, there's some optics that comes with that, and Mark mentioned it will be gradual in terms of bringing in the bulk of the workforce at a time or close to the time of production.
spk08: okay and so no comments at this point on you know the fixed portion of cost of sales and opex and how that would uh you know the rest of the opex and how we should think about the ramp curve for that no additional comments thank you thank you your final question comes from michael glenn with raymond james
spk11: Hey, good morning. I just want to go back to an earlier comment. I think you indicated that you have 3,000 batteries on hand. Is that what was indicated? That's correct, yeah. So is that you have three years of supply then of batteries? I'm just trying to understand holding that much inventory on batteries.
spk10: No, it's really the number of batteries. In general, you know, think of a school bus being sort of three to four batteries, and a truck could be as many as eight batteries, right? So it's not 3,000 vehicles. It's really the number of batteries. That said, you know, we're going to continue to receive more shipments of batteries, and it's something that's
spk11: Okay. And when you're having the negotiations with the cell manufacturers, what are their requirements? Are they asking for a take-or-pay commitment? What are you seeing in terms of pricing? Do you still see yourself in an attractive position to purchase cells, or is capacity getting constrained there?
spk09: No, we do, Michael. I think we feel the strategy we've taken so far is the right one. When you're buying packs or you're buying modules, you're fully captive to your supplier. When you're buying at the cell level, you're almost agnostic. to the cell supplier. So, yeah, active negotiations, you know, with many, many cell suppliers. The good thing is that, you know, we can have several cell suppliers. So it's a 21700 cylindrical cell, as you know. And, yeah, well, depending on, you know, the supplier, different requests, and those are, you know, exactly the items we're negotiating right now.
spk11: Okay. And the $215 million number you gave earlier for the capital spend on the projects, what would be the working capital estimate for the coming year?
spk10: I'm not sure. There's no working capital as far as $215.
spk11: If anything, some of it may be. No, I understand that. I'm just like your working capital forecast, like your working capital investment that would be required for the coming year.
spk10: Yeah, that's not a figure we'll be providing yet, Michael. We're going to continue to increase, for sure, to invest in working capital. At some point, that investment is going to go down, certainly relative to sales. That's the intention, but I won't be providing a specific figure on that.
spk11: Okay, that's all my questions.
spk10: Thanks.
spk11: Thank you, Michael.
spk05: Your final question is from Mark Neville with Kosher Bank.
spk07: Hey, good morning, Mark. Good morning, Nick. Good morning, Mark. Good morning. So for 2022, the capital budget, 215 for the projects, have you given the number for investment in intangibles and R&D space?
spk06: It's pretty significant, I think.
spk10: Yeah, that is not a number we're providing guidance on. We'll call it 2021, we invested about $45 million there, but won't be providing guidance on that fee.
spk06: There was 45 million 2021. That was the number that you just quoted, sir?
spk07: Okay. Okay. Okay.
spk10: And I guess this is why I'm understanding correctly the deliveries. There's 1,000 units in the backlog that sort of are set to be delivered this year. In Q1, it sounds like you're expecting to produce, deliver roughly 60 or 70, whatever you did in Q4. If, assuming you couldn't deliver those units in 2022, is there any penalty that you're sort of required to get?
spk09: Yeah, Mark, in most of the cases, I mean, no, I mean, we will, you know, we will be good. Some of them are being funded by, well, one example will be the HVIP, and there are some, you know, some dates of delivering at some point, but it's, I will say, you know, it's It's kind of minor in the order book that we have. So the answer to your question is yes, you know, for some units, but, you know, not very significant. Okay.
spk10: And just on your pricing strategy, just given the inflationary environment, I'm just curious sort of why not sort of put some price increases through. I'm sure, again, most companies I think are doing it. It feels like an easy environment to do so. I'm just curious, why not?
spk09: Because, I mean, we're maintaining our margins without doing it, Mark. I mean, no reason to do that, and I think, you know, that's basically, you know, the payback for everything we've been doing in the past, the whole strategy of, you know, procurement, vertical integration as well, purpose-built. Also, everything we've been saying, you know, for years that is the right way to do things, we see that, you know, the proof is in the pudding, and this is exactly what is happening right now. So while the other OEMs have no choice, than increasing their selling price well i mean you know so far i mean we have been able to cope with uh you know this uh this increase so um now we feel you know it's only proving that we've been doing the the the right thing for many many years okay okay um just just another defining line financing solutions um you talked about i guess using a third party uh to help with the upfront cost i mean do you have a vendor in place
spk10: Do we have a one? Sorry. Oh, yeah. So I think of third parties and not just a third party. The idea is that we're going to look to have partnerships on sort of the sort of upstream, if you will, to get to develop the solutions in a programmatic way, and then downstream use it as part of selling tool, right, as opposed to today where it's more of a, on a referral basis that will be packaged in the settlement tool or the toolkit that a sales force has. So we are speaking to various parties in this regard and expect more to come throughout the year. Okay. And can you remind me, the STD order, is that in the current backlog?
spk09: Which one you said, Mike, the STCs? Yeah. The Student Transportation of Canada? Yeah. Yeah. Well, that's in the order book for 1,000 units, yes. Yeah, okay, okay, okay.
spk06: Okay, I think I'll leave it there. Thanks a lot.
spk09: Thank you, Mark.
spk05: At this time, there are no questions. I would like to turn the call over for closing remarks.
spk00: Thank you, Teresa, and thanks everyone for joining the call. We look forward to continuing the discussion with you, and feel free to contact me if you have any further questions. Have a nice day.
spk05: This concludes today's conference. You may now disconnect.
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